I think most people will use VGA. The video quality test of cars passing down the motorway isn't too bad. And, with the TZ1 there is the bonus of being able to use the zoom when in record mode. On the newer TZ3 that option is not available. Panasonic left it out for some reason.
The quality of this footage is much better than what can be achieved with the Lumix FZ50 Bridge camera. I own both cameras and have compared videos. The TZ1 wins quite easily. Video is not the FZ50's strong point. I also own the TZ3. And when it comes to video quality, the TZ3 is very similar in quality to the TZ1.
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